Does size matter?

How can we justify the inefficiencies and unnecessary overheads of two tier areas and tiny unitaries in the current financial climate – when cuts are having a real impact on the most vulnerable?[1]

But is the assumption that big is better necessarily true? With Britain’s largest council, Birmingham City Council, in dire financial straits[2] perhaps it’s time to question the belief that larger authorities are more efficient.

When two small district councils, Babergh and Mid Suffolk, considered whether they should merge they compiled a detailed business case which suggested that a merger would save council tax payers around £1.8m annually across a combined general fund budget requirement of around £20m[3]. What is conspicuous by its absence in that business case is any discussion of the impact that merging might have on outcomes. The implicit assumption appears to be that outcomes will remain the same, thus allowing the reduced costs to be claimed as efficiency. Let’s consider some of the reasons why this might not be the case.

Allocative efficiency

To explain what I mean by allocative efficiency, we’ll look at an almost topical example. To keep our food bill down we achieve economies of scale by buying a lot of our food in bulk from a wholefood wholesaler. A few weeks ago we were compiling our bi-monthly order and with Easter approaching we wondered whether we should buy a box of six chocolate eggs. It would have saved us a fair bit on buying eggs individually from a retailer. The problem is that the nephews like their chocolate sweet and milky, we prefer it dark and at least 70% cocoa, and the in-laws are partial to a spot of white chocolate. So buying a crate of identical eggs would have meant that most people didn’t have the chocolate experience they would have liked. We’d have pushed down our inputs, but outcomes would have suffered.

This is a very real danger with merging authorities. A bigger council may enable economies of scale, but economies of scale assume that the same service is right for everyone. Different areas have different problems, different populations and different aspirations. The ability of a council to respond to the preferences of its citizens should sit at the heart of any measure of performance[4] and smaller, more decentralised units may provide better opportunities for greater responsiveness[5][6].

Leadership and staff engagement

During my career in local government I’ve worked for both a large unitary and a small district. The contrast in the culture of the two organisations, and in my sense of engagement and ability to influence outcomes, could hardly be more marked—I was far happier in the small district. It would be foolish to generalise from this one personal observation and there may be many factors other than organisational size involved. Nevertheless, there is evidence that transformational leadership is more prevalent in smaller organisations[7] and there is evidence that transformational leadership enhances staff commitment, engagement and performance[8][9].

Staff are at the heart of public service delivery and the ability to deliver services efficiently depends on their commitment and engagement. Merging councils threatens this commitment and may actually result in reduced productivity as a result.

Size and the ‘new model’ for public services

In her blog post, Catherine discusses a new model for public services being developed by INLOGOV. Key to this new model is building capacity within communities themselves, facilitated by public bodies building stronger relationships with them[10]. But is merging authorities going to facilitate stronger relationships between communities and councils? Studies in Scandanavia suggest that larger political units have lower levels of non-electoral participation[11], lower levels of political trust and lower satisfaction[12]. Larger councils are likely to feel more distant to citizens, with elected members representing larger numbers of constituents. The job of building trust will be all the more difficult, threatening any potential improvements in outcomes that the new model might deliver.

The new model discussion paper observes

Perhaps the behaviour which really needs to change first, so other change can follow, is that of people in the public sector.[10]

It is difficult to disagree. I am not arguing that things should stay the same. There is no doubt that the public sector has to get smarter in delivering better outcomes for less. It needs radical change in the way in which it approaches service delivery. It needs to work more closely with communities both to ensure outcomes are aligned with community aspirations and to enhance the capacity of communities themselves. It needs changes in approach and culture throughout. But creating larger authorities is unlikely to facilitate this change.

Babergh District Council and Mid Suffolk District Council (2011). Detailed business case for staff and service integration, and for the creation of a new council [Online]. Babergh and Mid Suffolk District Councils. Available from: http://apps.csduk.com/CMISWebPublic/Binary.ashx?Document=9600 [Retrieved 3 April 2013] [↩]

Wallis, JJ and Oates, WE (1988). “Decentralization in the public sector: an empirical study of state and local government.” In: Fiscal federalism: Quantitative studies [Online]. University of Chicago Press. pp 5–32. Available from: http://www.nber.org/chapters/c7882.pdf [Retrieved 4 April 2013] [↩]

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2 thoughts on “Does size matter?”

Hi Chris,
Despite only ever working for county council’s I do tend to agree with your comments regarding the merits of smaller organisations. Interestingly, the discussions we have had with colleagues from a smaller district council during our lectures has alllowed me to consider the contrasts and the efficiences that are created from being a smaller more joined up organisation that communicates well between departments (its more manageable) and as a result seems to experience far less duplication than ourselves. I thought your point regarding the need to consider the individual needs of different areas was spot on as creating services that do not serve these needs is going to be anything but efficient. It will be interesting to see whether citizens can be adequately engaged in co-production activities because as you suggest this seems a far better option.

It’s an interesting point you make about better communication and less duplication in a smaller organisation, which is perhaps the reason why transformational leadership is more prevalent in smaller organisations. A more complex organisation needs more formalisation and bureaucracy to keep on top of its complexity—more transactional management, leaving less room for transformational leadership.